Why is affordable housing the best investment option for both buyers and investors in India?

The focus on affordable housing in India has increased greatly in recent years due to various government-backed incentives and schemes. Also, as icing on the cake, mortgage loans have become cheaper. Therefore, this is a good time when a number of investors and home buyers are buying affordable homes in India. The 2017 Union Budget announced that affordable housing would be the main basis for developing “infrastructure” in the country. Companies that are dedicated to offering affordable housing can receive cheaper loans from different nationalized banks and also certain tax concessions. Also, several foreign funds are coming in which are significantly boosting the infrastructure sector in India. With this particular move, the Indian government is aiming to provide a huge boost to the infrastructure sector in India.

There are several property buyers in India who are dreaming of owning their own houses on an affordable budget. Some of these buyers aim to purchase affordable homes for residential purposes, while others intend to purchase these properties as an investment avenue. In case you are one of the many Indians who are planning to buy an affordable home, it is time to think this through before you buy.

According to a survey report published by the reputable real estate consultancy Monitor Deloitte, affordable housing projects are a very profitable business proposition for developers. In most major cities in India, such as Mumbai and Delhi, the internal rate of return (IRR) is 45% and there is a gross margin of 24%. Therefore, taking on affordable housing projects by developers is a lucrative proposition for them. It goes without saying that there are many private builder organizations that are rapidly entering this segment in recent years.

Special initiatives to boost affordable housing in India

Some of the recent initiatives taken by the union government in India regarding affordable housing during the Union Budget are discussed in the following points:

• Previously, developers used to often complain about the high interest rates they had to pay on their loans to develop real estate projects. The infrastructure tag that has been introduced by the Indian government that makes it easy for developers and builders to get loans at much lower and attractive rates to develop affordable housing projects.

• Apart from the proposed ‘infrastructure label’ for the Union budget, there have been several allocations and there are several housing schemes that have been introduced by the Government of India. One of the most important and popular budget-boosting investment schemes for affordable housing is the Pradhan Mantri Awaas Yojna. The budget of this government housing scheme was increased from Rs 15,000 crore to Rs 23,000 crore in FY2017-2018. This is an increase that reaches 50%.

• In order to further boost housing investment, the long-term capital gains holding has been significantly reduced from a three-year term to a two-year term. So, if you’re willing to buy property in affordable housing for investment purposes, you can sell the property just after two years and then claim some long-term capital gains that have indexation benefits. This would also encourage several people who are looking for properties with short and medium term investments.

• There is a 3% interest subsidy offer on home loans ranging up to Rs 12 lakh and a 4% interest subsidy on loans ranging up to Rs 9 lakh. Individual affordable home buyers who are willing to purchase a property in affordable housing can avail this subsidy benefit if their income is less than Rs 6 lakh per year. They have the option to borrow Rs 20-30 lakh maximum. This range of amounts constitutes about two-thirds of the amount of mortgage loans that are being disbursed by banks. Therefore, the industry is looking forward to these specific steps to boost the growth of the Indian real estate scenario in the currently subdued real estate sector.

Top factors to consider if you are considering affordable housing from an investment standpoint

Let’s take a quick look at some of the factors that determine the overall potential returns you can earn from an affordable housing investment. Since the investment option mostly involves large amounts, it is advisable to carefully analyze all the benefits as well as the risk factors related to the project.

• Infrastructure: A well-planned infrastructure near the property site is very essential for the property price to appreciate. Infrastructure such as availability of power and water, good wide roads, schools and hospitals are important things to consider. These are the main factors that help to obtain an appreciated resale value. While schools, hospitals, and other services may need some time to develop, basics like water, power, etc. they must necessarily be present at the time the property is being considered.

• Location – This is one of the most crucial factors to consider when planning a real estate investment. Ideally, you should buy in those places where the growth prospect is greatest in the near future. You may also want to consider paying a premium when you get certain top locations.

• Smart city label: Finally, cities that have the ‘smart’ label would certainly be an excellent choice for investment in affordable housing. The Indian government identifies 100 cities that would be developed as smart cities. These particular cities are bound to possess all the required infrastructure and within a few years these cities are expected to expand as the largest urban cities in India. In fact, there is great growth potential for such cities and therein lies great opportunities and potential for long-term profitability.